The following stories have been tagged washington ← Back to All Tags

Connectivity Cornucopia: We Give Thanks!

This time of year, people come together to celebrate the things they are thankful for and appreciate. Here at the Institute for Local Self-Reliance, we want to take a moment to appreciate all the communities, people, and wonderful ideas that help spread the concept of fast, affordable, reliable connectivity.

A few of us looked into the cornucopia that is feeding the growth of publicly owned Internet networks and picked out some of our favorites. There are more people, places, and ideas than we could write about in one post. Nevertheless, it's always good to step back and consider how the many contributions to the Connectivity Cornucopia accelerate us toward high-quality Internet access for all.

People: Colorado Local Voters

We appreciate the voters in Colorado who chose to reclaim local authority. This year, 26 more counties and municipalities asked voters to opt out of restrictive SB 152, and all chose to take back telecommunications authority. They joined the ranks of a groundswell of local Colorado citizens who have voiced their opinion to Denver - 95 communities in all. They know that they are the best situated to make decisions about local connectivity and, even if they don’t have solid plans in place, want the ability to investigate the options. Colorado voters rock!

Place: Ammon, Idaho  

The unfolding municipal fiber network in the city of Ammon, Idaho (pop. 14,000) continues to attract a steady stream of honors and opportunities. In August, the National Association of Telecommunications Officers and Advisors (NATOA) named Ammon’s open access network the 2016 Community Broadband Project of the Year.  Two months later, the city said it is partnering in a $600,000 initiative with the University of Utah to research and develop a series of next-generation networking technologies supporting public safety, including broadband public emergency alerts. With Ammon’s new fiber network, residents are giving thanks for a system that allows them, among other things, to change their Internet Service Provider (ISP) simply and quickly from a sign-up portal.

We give thanks for Ammon’s innovation and their desire to give people choice.

Policy: Clever Conduit Approaches

Multiple communities have created smart conduit policies to bring connectivity to their residents. Conduit is a reinforced tube that protects and guides cables that run underground. Despite how boring conduit policy might sound, it can bring about better connectivity and ensure community control of public infrastructure. Smart conduit policy is a cornerstone for municipal networks and creating infrastructure for potential future partners. For instance, Mount Vernon, Washington, has its own open access network with eight different Internet Service Providers. The city ensures that developers install conduit in all new developments and then turn control of it over to the city. There are many more excellent models of conduit policy, just check out Lincoln, Nebraska; Centennial, Colorado; or Saint Louis Park, Minnesota.

We understand the importance of smart conduit policy and are thankful for the fact that an increasing number of communities are onboard with implementing similar measures.

So Much To Appreciate!

These are only a few of the people, places, and policies that produce better connectivity for local communities. We're thankful for them and for many others as more communities realize the value of publicly owned Internet networks. We wish you a relaxing and warm holiday and hope you have a moment to pause and consider all you have to be thankful for.


turkeys.jpg

Photo of the turkeys courtesy of Farmgirlmiriam via Pixaby.

Photo of the cornucopia courtesy of Cliparts.co.

Connectivity In Kitsap: LUD In Lookout Lane

Residents in the Lookout Lane neighborhood of Kitsap County, Washington, tired of shoddy DSL so they joined forces to take advantage of publicly owned fiber. By the end of 2016, this group of organized neighbors anticipates connecting to the Kitsap Public Utility District (KPUD) open access fiber network.

How Did They Do It?

According to the October newsletter from the Northwest Open Access Network (NoaNet), neighbors in the Lookout Lane area had dealt with slow DSL for some time, paying $60 per month for speeds that rarely reached 1 Megabit per second (Mbps). Some of the residents have careers in the tech industry and required high-speed connections to work from home, but the national incumbent would not invest in upgrades. Lack of high-quality Internet access also caused several home sales to fall through.

Members in the neighborhood decided to petition the KPUD to form a Local Utility District (LUD) to fund their portion of the cost of a fiber expansion to their homes. KPUD would finance the cost of deployment to the edge of the neighborhood. Residents decided the investment was worth an assessment on their property rather than contending with the outdated technology offered by the incumbent.

The Lookout Lane LUD is the first in the state of Washington established for Internet infrastructure.

Forming A LUD In Washington

NoaNet describes the steps in forming a LUD in their newsletter:

How does a LUD work? 

  • Homeowners petition the Public Utility District to form a Local Utility District

If a majority (50%+1) of the homeowners petition the LUD is formed

  • Once the LUD is formed, the PUD begins the process to construct the infrastructure

When construction is complete, the homeowners are provided a final assessment amount The assessment can be paid:

  • Upfront 
  • Over a 20-year period 
  • Or a combination of the two – A portion upfront and the rest over 20 years

The county administers the assessment and homeowners receive a tax bill for their 
assessed amount annually

KPUD, a member of NoaNet, began using the COS Service Zones survey system in August 2015 to determine where county members wanted them to expand for possible residential service. The state of Washington prohibits PUDs from providing retail service to residences, but the KPUD wanted to prepare for the time when they might open up the network for wholesale service so private ISPs could use the fiber infrastructure.

When the Lookout Lane neighborhood buildout is complete, the KPUD will have the opportunity to examine results for possible similar build outs in other areas of the county.

Rural Electric Co-ops Power Up a Gig in Pacific Northwest

Rural electric cooperatives are providing next-generation connectivity. In Oregon a consortium of electric cooperatives called LS Networks built a middle mile network a few years ago and now are taking the next step with last mile connectivity.

LS Networks’ Connected Communities program hopes to bring last mile fiber connectivity to 25 communities in rural Oregon and Washington. Internet access will officially be available in early 2017 in some communities. Depending on the needs of each community, the solution could be Fiber-to-the-Home (FTTH), or fixed wireless using the fiber-optic network for backhaul.

Connected Communities

The project started in July, but LS Networks only now made the official announcement. The Connected Communities program asks folks to nominate their community to be connected by filling out a short form. LS Networks will offer two types of monthly plans [pdf]: 100 Megabits per second (Mbps) for $40 and a Gigabit (1,000 Megabits) for $70. Customers will also be able to purchase voice service for an additional $15 per line and 50 cents per phone number.

Currently, the small, northern Oregon town of Maupin is the only official Connected Community. LS Networks is already at work building out a fiber connection to nearly all of the 400+ homes and businesses in the community. On November 9th, Maupin residents can take part in a town hall meeting at the South Wasco County High School to learn more about LS Networks’ plans and the Connected Communities program.

Consortium of Cooperatives

LS Networks should be well prepared to handle such a large-scale fiber network project. The consortium of electric cooperatives and the Coquille Tribe came together around 2005 to provide middle mile connectivity. At first, the consortium focused on their region of northern Oregon, but LS Networks’ footprint quickly grew to 7,500 route miles of fiber. The network spread throughout the Pacific Northwest, covering rural regions of Washington, some areas of northern California, and even parts of Idaho. 

If all goes as planned, rural homes and businesses in Oregon and Washington will soon have access to affordable next-generation technology. In the press release, Director of Sales and Marketing Bryan Adams highlighted how LS Networks continued to stay true to its cooperative roots

“Our priority has always been to provide service before profit and to use telecommunications as a tool to bridge the communities that make the Pacific Northwest great — on both sides of the Cascades.”

To learn more about the Connected Communities program, check out the LS Networks Connected Communites information website.

Port of Ridgefield Receives Grant for Feasibility Study

Ridgefield, Washington, a community of about 4,800 located about 25 miles north of Portland, is one step closer to establishing a dark fiber network for the Port of Ridgefield after taking advantage of state funding for community revitalization. On September 15, the state’s Community Economic Revitalization Board approved a $50,000 grant for the project, and the city has approved matching funds to initiate the planning process. 

“A unanimous decision by the board to award us the grant in the full amount we applied for is much appreciated,” Port of Ridgefield vice president of innovation Nelson Holmberg said. “It recognizes our disciplined approach and smart policy we’ve established as we work to ‘light up’ the Discovery Corridor.”

As planned, the dark fiber infrastructure would include the Ridgefield Port District (also called the Discovery Corridor), reaching the Legacy Salmon Creek Medical Center and Washington State University Vancouver. While the port is not interested in operating the infrastructure, several Internet Service Providers (ISPs) will be able to compete to provide services through leasing space on the public fiber network.

Designing A Faster Anacortes Starts With NoaNet

Anacortes, Washington, is officially on the road to better connectivity via publicly owned infrastructure. Community leaders voted on September 19th to collaborate with the statewide middle mile network, Northwest Open Access Network (NoaNet), to get the project started.

One Piece At A Time

Public Works will be the first to use the fiber backbone to monitor and control its facilities; the community’s current radio-based system is prone to frequent failure. Water and sewer utility funds will pay for the design and construction of this section of the network. Officials estimate the fiber backbone will cost around $3 million.

Turning To Experience

The city approved $175,000 in design fees to nonprofit NoaNet, in part because it is funded and managed by several public utility districts. It brings high-quality Internet access to local government facilities all across the state. NoaNet’s fiber-optic network spans Washington with more than 2,000 miles through metro and rural areas. Its open access model encourages multiple service providers to offer services to more than 2,000 schools, libraries, hospitals, and other community anchor institutions in over 170 communities. The network has served the state for 15 years.

The Anacortes plan would connect its network to the Internet and then to local businesses and homes in a later phase. For now, the city’s priority is the utilities upgrade:

“Every day my guys are telling me we have (communication) failures,” Buckenmeyer said. “A fiber telemetry system is arguably the best system you can have. Our current system is outdated and we need to do something about it.”

Buckenmeyer said the first phase of the network could be finished within 18 months.

An Island Community

Anacortes, home to about 16,000 people, is located on the northern half of Fidalgo Island. Puget Sound and the San Juan Islands surround it on the north; Skagit Valley and Mount Vernon, another community with its own municipal network, are east on the mainland.

Island communities are often plagued by poor connectivity. Often they are hard to reach and large Internet Service Providers (ISPs) can't justify the cost to bring high-quality Internet access to places that are not densely populated. Places like Islesboro, Maine, and Doe Bay, which is also in Washington, have taken to finding their own solutions to improving Internet access.

Port of Lewiston Crossing Bridges: Network Forges Ahead

Port of Lewiston’s open access dark fiber network continues to move toward completion. Construction crews are burying fiber lines at multiple project sites around Lewiston. In the past few weeks, the network crossed to the north side of Clearwater River via the Memorial Bridge, where it will link to Whitman County’s fiber network. 

A recent article from the Port of Lewiston listed completed sections of the network, 

“So far, it reaches major employers such as St. Joseph Regional Medical Center, Lewis-Clark State College, Regence and the Vista Outdoor plant at 11th and Snake River avenues.”

The article also outlined the projects to be completed by September 1st,

“They will reach the industrial district by the Lewiston-Nez Perce County Regional Airport, Clearwater Paper, Schweitzer Engineering Laboratories and the Southway Bridge. At the bridge, the lines will connect with an Asotin County network built by the Port of Clarkston.”

Questions From The Past

Memorial Bridge is only the first of two bridge crossings necessary for the completion of the Lewiston-Whitman-Asotin fiber network. The Southway Bridge crosses the Snake River to Asotin County. Conduit access rights stalled construction progress across the river. We wrote about the negotiations in a story from earlier this summer.

Readers may recall that there was a question with Centurylink's right to have conduit on the bridge and whether or not they owned the conduit or where the provider's potential ownership rights ended. To iron out the details, the Port of Lewiston filed a Freedom of Information Act request with the U.S. Army Corps of Engineers, the bridge builders.

The Lewiston Tribune (also reprinted in 4-Traders) reported that the Port of Clarkston has reached an agreement for conduit access on the Idaho side of the Southway Bridge, 

“CenturyLink granted the Port of Clarkston use of one its 20 conduits on the Washington side of the bridge, enough room to meet the community's needs for as many as 60 years, Port Manager Wanda Keefer said… Ideally, the lines will be live by Sept. 1 to accommodate a customer… Before that can happen, CenturyLink needs to iron out issues with Asotin and Nez Perce counties and the cities of Lewiston and Clarkston, which own the bridge.”

The bridge was built in the 1980s and no one has been able to locate documentation that describes the length of Centurylink's easement on the bridge. Centurylink pays $0 for the use of the bridge, which is another issue that may be re-examined as the parties move forward. According to a local official, the Port of Lewiston has not yet come to an agreement with the involved parties, but negotiations are making progress.

Connecting And Competing

Thus far, the Port of Lewiston has spent roughly $600,000 on the network infrastructure project designed to promote competition among Internet service providers and spur economic development. "We think it's going to provide connectivity to our community so we can compete with almost anywhere in the world," [Port Manager Wanda] Keefer said.

Port of Ridgefield, Washington: Dark Fiber Network On Deck

The Port of Ridgefield is planning to build a municipal open access dark fiber-optic network that could provide access to high-speed Internet connectivity for the Washington state community of 4,800. 7,000

Planning Stage

Town officials held a public informational meeting in late June to update residents and businesses on the fiber project, which is still in the planning stage. Estimated cost of the proposed 42-mile fiber backbone is $2.4 million, Nelson Holmberg, Port of Ridgefield vice-president of innovation, told us.

Currently, the Port has budgeted $500,000 from town funds for this year’s portion of the project, the Vancouver Business Journal recently reported. Holmberg told us:

"We are moving  forward with construction design and policy work. The Port will not be the operator, nor will it offer service on the backbone. Retail service will be offered by the [Internet Service] providers  who ride on our fiber. We're simply building the infrastructure and making it available to providers."

Holmberg told us that a firm construction timeline has yet to be set. According to the Business Journal, the Port of Ridgefield will make use of existing assets and take advantage of opportunities to reduce costs. The Port hopes to work with Clark Public Utilities and the Clark Regional Wastewater District to plant conduit whenever there is new trenching and pull fiber through conduit that is already in place.

A Mixed Bag

Currently, Internet service in the Port is a "mixed bag," Holmberg told us, with the offerings including Comcast Business, Comcast or CenturyLink to the home, satellite and point-to-point wireless and even dial-up.

The Port's fiber development project is needed to help retain and attract business, Holmberg continued. The availability of high-speed Internet connectivity is especially important to modern industries that depend on being able to transmit and receive large amounts of data.

Holmberg told us:

"Businesses [in the Port] complain they can't get the bandwidth or speeds they need, and are excited about the opportunity that they see in our system. As an anecdote, Washington State University Vancouver - at the south end of our planned loop - has a need to send 1 Terabyte (over 1,000 Gigabytes of data) of research to the main campus in Pullman, Washington once a week. Because they don't have the bandwith they need, they are literally downloading to a hard drive and overnighting the hard drive to Pullman."

Keeping Up With The Speed Of Dark Fiber

Port of Ridgefield is among a growing number of communities that are seeking to make high-speed Internet connectivity available to businesses and providers via dark fiber, i.e. fiber optic cable that is not currently active or “lit.” In the Northwest, the Idaho towns of Port of Lewiston, Port of Clarkston, and Port of Whitman are working together to use dark fiber assets for commercial connectivity via a similar open access model.

As more communities in the region invest in essential Internet infrastructure, those that don’t have publicly owned networks or private providers to provide high-speed connectivity in their communities will be disadvantaged.

“Accessible and reliable high-speed Internet infrastructure and connectivity is a critical component of successful economic development activity in our region,” said [Columbia River Economic Development Council president, Mike] Bomar. 

“Our region’s ability to add fiber connectivity to our list of business amenities will provide a direct competitive advantage to our existing companies and in our ongoing work to attract and recruit new enterprise into the area across a diverse array of industries.”

The Tacoma Click Saga of 2015: Part 4: Accumulating Spillover Effects

This is the last in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. Part 4 highlights Click’s often unseen “spillover effects” on the City of Tacoma’s economy and telecom marketplace over the network’s nearly 2 decades in operation, contributions that Tacoma should expect to persist and even expand in the future.

We published Part 3, an analysis of why the municipal network is positioned to thrive in the years ahead within the modern telecommunications marketplace on June 21st. In Part 2, published on June 7, we reviewed why Tacoma Public Utilities considered the possibility of leasing out all of the Click operations. On May 31, we published Part 1, which reviewed the community's plans for the network.

Part 4: Click’s Accumulating “Spillover Effects”

Regardless of any impending changes with Tacoma Click’s operations, it’s clear that the network has and will continue to support and enhance the overall economic interests and the public good in the City of Tacoma. “Spillover effects” - the benefits to the community that don’t show up clearly in any financial statements - tend to appear after communities developing their own municipal broadband networks.

Click’s spillover effects start with the broad economic development benefits that arose when Click appeared. Before Click came to town, Tacoma was a city in economic decline. Many businesses had fled downtown for the suburbs over the 50-plus year period after World War II. 

While we can’t give Click all of the credit for the city’s efforts to rebound from that period of economic downturn, analysts like the U.S. Conference of Mayors cite the $86 million Click network as a major component. The network was part of an ambitious and highly successful economic development effort in the 1990s that helped to revitalize Tacoma. In 2005, the Sierra Club named Tacoma’s revitalization effort one of 2005’s top 12 economic development projects in the nation

As part of Tacoma’s revitalization project, the city opened a new downtown branch of the University of Washington that remains successful today. And as we noted in a 2010 article about Tacoma Click, more than 100 high-tech companies arrived in Tacoma within a couple of years after the network launch. This means that many current Tacoma citizens also arrived in town through jobs that Click helped create.

tacoma-east-21st-st-br-tacoma-afreeman.jpg

Broadband Competition Spills Over Too

A recent study from the Organisation for Economic Co‑operation and Development (OECD) shows that the arrival of a municipal network in a city typically improves competition in the local broadband market. That is, municipal networks tend to prompt private broadband companies to lower prices and improve services in places where there are municipal networks. Indeed, a Tacoma resident reported a few years ago that Comcast customers had been consistently paying about half of what Seattle Comcast residents were paying for the same services. It’s also likely that Comcast would have delayed its 2008 upgrade of its infrastructure in Tacoma if the city had never built Click in the first place.

This evidence suggests that, were it not for Click’s impact on the ISP marketplace, the city’s Internet services from private ISPs like Comcast would likely be slower and more expensive than they are today. If Click disappeared and the city had no municipal broadband service to compete with Comcast, citizens, businesses, and government agencies in the city could expect prices to increase while customer service declines.

What many people in and outside of Tacoma may not realize is that, like most community-owned networks, Click strives to keep prices for telecom services below market rates for the good of the community. The city of Tacoma also saves on telecommunication costs because it uses Click rather than leasing. Click has essentially contributed untold savings to the City of Tacoma.

So who would be the big winner if Tacoma decided to lease out Click to a private company? Tacoma businesses and residents? The private ISP that would take over the Click’s operations? Leasing Click to a private company would almost certainly benefit Comcast more than any other party. The company with the dubious distinction as both the largest media company in the world and a perennial contender for most hated company in America has the most to gain.  

Another Historical Moment for Click

As the importance of broadband access expands, we expect the City of Tacoma to see the wisdom in the words of Tacoma’s former mayor Bill Baarsma, who in 1999 described Tacoma Click’s historical significance for the city and its potential for the future:

“This is the single biggest economic decision the council has made since the turn of the last century, when the City Council decided to move forward with the construction of the first hydroelectric dam on the Nisqually River. Things are happening here that are happening nowhere else."

In the years immediately following Click’s launch, this municipal network helped the City of Tacoma to re-emerge from a decades long economic slump. The question facing Tacoma between leasing Click to a private ISP and keeping Click as a publicly owned and operated asset will once again culminate in a pivotal decision with far-reaching implications for Tacoma’s future.

Our observation of community-owned networks around the United States suggests that the benefits of keeping and remaking Click as a city-owned asset will only become more apparent in the years ahead. A renewal and restructuring of Click operations to meet the needs of the changing telecom landscape would help to optimize the network’s potential as a driver of local economic development and cost savings. These changes will allow the Tacoma leaders of today to carry on the legacy of the city officials who took the initiative to create the historic Click network nearly 20 years ago.

tacoma-skyline.jpg

Photo of Tacoma Skyline: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons

Photo of East 21st Street Bridge at Night: AFreeman, through Creative Commons

The Tacoma Click Saga of 2015: Part 3

This is Part 3 in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. In Part 2, published on June 7, we reviewed the main reasons why Tacoma Public Utilities considered the possibility of leasing out all of the Click operations. On May 31, we published Part 1, which shared the community's plans for the network. Part 3 covers why we believe the Click municipal network is positioned to thrive in the years ahead within the modern telecommunications marketplace.

Part 3: Positioning Click for the Future

If Tacoma leaders decide to move ahead with the “all in” plan that they're currently exploring, several factors suggest that Click can become an increasingly self-sustaining division of Tacoma Public Utilities (TPU). To recap, the “all in” plan would reportedly involve two major changes at Click. One, it would mean upgrading the network to enable gigabit access speeds. Two, the all in option would likely mean cutting out the “middlemen” private companies that currently have exclusive rights to provide Internet and phone services over the network. Instead of the current system, where Click only offers cable TV services while middlemen provide Internet and phone, the new all in plan would position Click as the retail provider for all three services.

Adapting to A Challenging and Changing Telecom Landscape

It makes sense for TPU to keep Click and improve it. TPU’s slide from Part 2 in this series reveals:

(1) Click’s subscriptions for Internet-only customers turned a corner in 2014 and started to exceed projections.  This data indicates that the most important component of Click’s future business prospects—its Internet access service—is growing.

(2) With a proposal on the table to upgrade the infrastructure to offer gigabit speed service, the city can expect Click to provide stronger local ISP competition on both broadband speed and price. In an age of increasing need for data access, any ISP that upgrades its infrastructure should reasonably expect to see increased demand for extremely fast Internet access services, a level of demand that didn’t exist 10 or even 5 years ago during the period when Click was having its greatest financial challenges.

logo-tacoma-power.png

(3) The ongoing growth in Internet subscribers for Click’s ISP partners runs parallel to the growing cord-cutting phenomenon, a development led by younger generations that industry experts predict could eventually lead to an Internet-only model for all media programming.

(4) If Click goes with the all in option, the triple play proposal figures to create new revenues as Click would more easily attract those customers who see the triple play option as simpler and more cost effective. Indeed, as a private consultant once suggested to Click, Click’s previous inability to offer triple play services was almost certainly an obstacle to achieving a higher take rate

A decision to instead lease Click out to a private ISP, would mean losing control over a business that is now primed for faster and more sustainable growth than ever before. Tacoma Mayor Marilyn Strickland agrees that a reshaped Click is the way to go:

“I can’t support doing something with Click when we haven’t presented the best possible Click” she said. “It’s about the quality of the product. We’re here to compete. We’re here to compete hard. And we’re here to win.”

Beyond the city’s efforts to restructure the network’s technology and business model, a common challenge for community networks like Click is the disadvantage that any small ISP has in its ability to market its services. Indeed, a poll TPU conducted last year showed that only a small minority of Tacoma residents even understand the services that Click provides. This fact underscores the reality that Click is competing against a Comcast's national brand with far greater resources for reaching potential customers. It also suggests that Tacoma Click could benefit from improved future marketing efforts that might become possible with stronger revenue flow from the expected growth of a revamped Click.

More than a Telecommunications Provider

While the financial health of Tacoma Click is of paramount importance to the network’s future success, it’s also essential that the people of Tacoma recognize the wide-ranging spillover effects for the community over its nearly two decades in existence. These spillover effects are the broad impact that Click has had and will continue to have on things like Tacoma’s varied economic development fortunes, Click’s impact on competition, and on lowering local telecommunications costs. These factors, which we discuss in Part 4, clarify that Click’s actual value extends far beyond internal financial reports.

tacoma-skyline.jpg

Photo Credit: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons

The Tacoma Click Saga of 2015: Part 2

This is Part 2 in a four part series about the Click network in Tacoma, Washington, where city leaders spent most of 2015 considering a plan to lease out all operations of this municipal network to a private company. Part 2 explores the major reasons why Tacoma Public Utilities has considered the move to lease out all Click operations. Part 1, published on May 31, examines possible plans for Click in the immediate future.

Part 2: TPU’s Challenges with Click

When TPU officials proposed last March to lease the network to a private ISP for 40 years, they cited revenue losses for Click as high as $7.6 million annually, indicated by troubling financial reports in recent years. Some critics, however, such as those with the advocacy group “Stick with Click,” countered that this figure is inaccurate. They say that TPU manufactured the revenue losses through an accounting decision that resulted in a deceptively bleak picture of Click’s financial performance.

To shed light on the disagreement, we're examining relevant facts about Click.

Allocating the Costs of a Shared Infrastructure

When Tacoma first built the Click network in the late 1990s, the Hybrid Fiber Coax (HFC) infrastructure was to support services for two divisions of the TPU: TPU Power and Click. Besides the infrastructure’s function for supporting Click’s services, the city designed the HFC infrastructure to support a smart electrical metering program for TPU Power services.

This dual purpose meant that for accounting purposes, TPU had to allocate the costs of a shared network based how much each division would rely on the network. This cost allocation (a common accounting practice) would assign each division a portion of the original capital construction costs for building the network and a separate portion of the network’s ongoing operations and maintenance (O&M) costs. 

Ultimately, and with the help of an independent consultant, the city settled on cost allocation ratios in 2003, which determined how the TPU would assign capital and O&M costs to each division.

TPU Power would pay 73 percent of the capital costs to build the HFC infrastructure; Click would pay the remaining 27 percent. Click would then pay a 76 percent of the network’s ongoing O&M costs, with TPU Power paying the remaining 24 percent of O&M.

For several years, TPU Power used the HFC infrastructure to facilitate operations of a series of smart meters. But a few years ago, TPU made the decision to follow what they said was a trend in the power industry to instead start using wireless technology for their smart metering needs. This decision, they said, led TPU Power to begin phasing out its use of the HFC infrastructure for their smart metering program.

Now that TPU Power would no longer be using the smart meters, they determined that this change would justify significantly increasing Click’s portion of the allocated O&M costs for the HFC infrastructure. After some dispute over how to fairly adjust the numbers, TPU settled on a new cost allocation which raised Click’s portion of the O&M costs from 76 percent to 94 percent.

Is the Updated Cost Allocation Justified?

Using these new cost allocation numbers, TPU reported that the Tacoma Click network was experiencing annual losses of $7.6 million. But some observers in Tacoma were skeptical of TPU’s cost allocation decision and loss figures. For instance, an accountant for a Tacoma-based tech company suggested a view expressed by many others in town that the TPU has not been sufficiently transparent about the nature and causes of Click's reported financial problems.

Others note that if Click had simply kept the original cost allocation structure unchanged, Click’s current reported annual operating losses would sit at a more modest $700,000 rather than the $7.6 million figure. 

Justin Marlowe, a professor of public finance at the University of Washington, told the Tacoma News Tribune that cost allocation decisions by government agencies like this are always based on somewhat subjective criteria:

“Cost allocation for internal budgeting and cost analysis purposes is really the Wild West,” he said. "There is very little in the way of national standards. It’s nothing like financial accounting, where there are very strict rules about general accounting principles.”

logo-tacoma-power.png

Regardless, TPU officials believe that TPU Power has paid its fair share of costs for building and using the network and that the new cost allocation for the two divisions is justified. For one, TPU Power retained responsibility for paying its full, originally established 73 percent share of the $86 million capital costs for building the network. TPU Power also paid the portion of the O&M costs originially agreed upon during the period they were using the infrastructure for their smart meters. Now that TPU Power no longer uses the network for the smart meters, utility leadership sees the adjusted cost allocation as a natural result of these changes.

But supporters of the plan to keep Click believe TPU’s adjustment of O&M costs represents a broken agreement by TPU, a failure to follow the originally established financial conditions for building and then operating and maintaining the network. Moreover, Click supporters believe that the locally owned municipal network offers economic and other benefits to the city that TPU is failing to recognize.

Claims of Mounting Financial Challenges

When TPU’s constructed its HFC network in 1997, it provided speed, capacity, and reliability that far exceeded the standards in the telecommunications industry of the time. The only private competitor in Tacoma was TCI Communications and they offered inadequate Internet and cable TV services. Click’s arrival not only improved the quality of local connectivity, it also helped attract businesses to the community as part of a highly successful city revitalization effort in the late 1990s and early 2000s.

In 2001, a couple of years after Click got off the ground, Comcast bought TCI and in 2008, Comcast upgraded their telecommunications infrastructure to a DOCSIS 3.0 network throughout the city. One report said that this upgrade enabled Comcast to start providing more affordable prices than Click at each speed tier for Internet service in Tacoma. And yet a more recent 2014 report says that Click’s service prices would continue to be below or the same as Comcast’s local prices, suggesting that reports of better prices from Comcast in Tacoma may have been based on temporary bait and switch promotional rates that Comcast is known to use to attract new customers. Still, the reality is that many Tacoma residents have at times at least had the perception that Comcast has offered the best prices for service in Tacoma.

Comcast also has the advantage of being able to provide bundled triple-play services -- Internet, cable TV, and phone. With Click’s business model, however, Click serves as retail provider of Cable TV services while providing only wholesale Internet access and phone services through a group of private ISPs. This divided model prevents Click from offering triple-play packages. Some in Tacoma believe that Click’s inability to offer a triple play option has been a major barrier in Click’s efforts to increase their take rate

Comcast’s extraordinary market power gives them another advantage. The conglomerate has had unparalleled leverage to negotiate rates on programming costs that are as much as 20 percent less than what Click pays. Because Comcast has the luxury of being able to use revenues from other markets to cross-subsidize their services in Tacoma, this makes it easier for them to offer low rates and deep promotional offers to compete with or even at times undercut Click’s prices. These are all indications that the company has an unfair competitive advantage in a marketplace with a very high concentration of ownership.

Finally, as the slide below from a recent TPU presentation shows, TPU’s original 1997 projections for expected cable TV subscriptions never reached projected rates.  And in 2010, Click had to increase their subscription prices after programming costs started increasing at about five times the rate of inflation, far outstripping TPU’s original projections. Overall, it’s clear that factors on the declining Cable TV side of Click’s business have been a major source of the network’s struggles.

 

Figure from TPU Presentation Illustrating Click’s Actual Performance Vs. Projections

This slide from a recent TPU presentation shows that Click's Cable TV division has underperformed while seeing higher than expected programming costs. It also shows, however, that their ISP business is exceeding expectations.

A Look Ahead to the Future of Click

Comcast’s built-in competitive advantages in Tacoma have likely hampered Click’s capacity to grow a larger customer base. The above slide also tells another story: one of recent strong growth on the Internet side of the business, growth that has allowed Click’s Internet services to exceed TPU's original projections. As we discuss in Part 3, this trend suggests that Click can expect to see continued growth in its core future function as an ISP.

tacoma-skyline.jpg

Photo Credit: Dean J. Koepfler, Tacoma News Tribune Staff Photographer, through Creative Commons